Nothing is constant at Fidelity -- except change. The Boston fund giant, which has long emphasized go-it-alone portfolio management, has just installed a team of no less than nine managers to run a fund. For now, the team is managing VIP Contrafund Portfolio, a fund available only within variable annuities. But the team's responsibilities are bound to grow.

The team is headed by Robert Stansky, who stepped down as manager of Fidelity's flagship Magellan fund in 2005 after nine years of mediocre performance. Under Stansky are eight co-managers -- each of whom will pick stocks from a broad industry sector, such as energy or technology of health care. All but one of the industry specialists will continue to run other Fidelity funds.

That's just the beginning. "The team may end up managing more funds," says Anne Crowley, a Fidelity spokeswoman. "But this is not a sea change. The vast majority of Fidelity's funds will continue to be managed by one manager." She points out that several funds, including the Asset Manager funds and Worldwide, have long utilized more than one manager.

New twist on old method

But plainly Fidelity is continuing to grope for innovative ways to deal with the problems caused by asset growth, which can make it more difficult to run funds efficiently. In doing so, Fidelity appears to be putting its own spin on a method long employed by the highly successful American funds, the nation's largest manager of stock and bond funds.

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All of the American funds, which are sold only through brokers and advisers, are team-managed. Each team member is responsible for investing a portion of the assets -- but unlike the Fidelity prototype, American team members can invest in any industry. When assets grow at an American fund, the company simply adds another manager.

At Fidelity, the multi-manager approach could well be a first step towards increasing capacity -- that is, either reopening closed funds or launching new ones. With Contrafund manager Will Danoff no longer managing the VIP version of Contrafund, Fidelity announced that Danoff's other fund, broker-sold (and load-charging) Advisor New Insights, will re-open to new investors November 1. But that still leaves ten Fidelity funds -- containing a whopping 33% of the firm's assets -- closed to new investors.

Fidelity has recently borrowed some other ideas from the American funds. It split off its $100 billion institutional money-management business into a separate unit called Pyramis. For the first time, it began hiring veteran analysts, and created an analyst career track. Previously, Fidelity hired analysts fresh from college and, over time, promoted the best ones to be managers.

The one thing Fidelity seems to have no interest in borrowing from the American funds is the latter's steadiness and desire for consensus before making changes. While the American funds almost never lose an analyst or manager, turnover is constant at Fidelity.

Last January, Steve Jonas, who headed a restructuring of Fidelity's stockpicking operation, left the firm. Several months later, Rodger Lawson, a former Fidelity official, became president, taking over from Bob Reynolds, who also departed. Insiders see the fingerprints of longtime chairman Ned Johnson, 77, on both these moves -- as well as the other changes.

Better performance

In spite of, or because of Johnson's unceasing drive to improve his company, performance has picked up significantly this year. Fidelity's average diversified U.S. stock fund ranks in the 36th percentile against its peers this year through October 25, according to Morningstar. That means Fidelity's domestic funds are better than nearly two-thirds of their competitors. By contrast, Fidelity's diversified U.S. funds ranked in the 45th percentile last year. Over the past five years, Fidelity's diversified domestic funds rank in the 38th percentile. The performance year to date and over the past five years is good -- albeit not great.

Foreign funds are still a problem. The average diversified foreign fund ranks in the 50th percentile -- the precise middle of the pack -- against other diversified foreign funds so far this year, Morningstar reports. That's still much better than last year, when Fidelity's foreign funds ranked in the 83rd percentile. Over the past five years, Fidelity's foreign funds are in the 52nd percentile, slightly below par.

My bottom line: Fidelity is a good fund shop. But change is never easy, and the speed of change at Fidelity makes it a pressure cooker for fund managers and analysts. Maybe that's part of the reason Fidelity still hasn't rekindled the magic that produced such terrific returns in the 80s and early 90s.

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